Your pension is probably the most important asset you have, hopefully enabling you to enjoy your retirement in the comfort and security that you enjoyed during your working life. The way a pension works is simple, the contributions you make during your working lifetime along with any employer contributions are invested in one or more of a range of pension reviewprofessionally managed funds. Any UK resident under the age of 75 is eligible to receive income tax relief at their highest marginal rate on annual contributions to private and occupational pension schemes, up to 100% of UK earning with an annual allowance limit of £255,000 for 2010/11. Because of the favourable tax advantages, pensions have traditionally been seen as an ideal means of providing income in retirement, however, for millions of savers, their retirement plans have been ruined by years of poorly performing pension funds. With the current single state pension in 2010/11 being a maximum of £97.65 and some people receiving less than this, it is important that you are aware of the kind of income you can expect in retirement. According to the annuity specialist Partnership, between 2004 and 2009, 9 out of 10 people who retired had amassed a pension pot of less than £50,000 while 77% of people had less than £30,000, the group saying that a £30,000 annuity in today’s rates would provide an income of just £2000 a year.
With this in mind there has never been a better time to find out how your pension is performing and whether it’s on target to produce the income that you had hoped for in retirement. An easy solution is to find an Independent Financial Adviser (IFA). Independent Financial Advisers are authorised and regulated by the financial services authority. This allows you to check their credentials with the Financial Services Register. They will offer you written advice and recommendations, based on your particular personal and financial circumstances. This will usually be a fee free service without obligation although you will be given the option. A successful IFA firm will work on the basic tenant of offering an advised based process and not a sale’s driven process. If they cannot illustrate to you that they can add significant value to your pension then they do not deserve you as a client. They know that by offering you advice without up front fees, they can demonstrate their commitment of excellence to you and history has shown that this is the best way for them to further their business, putting their clients first.
When first meeting with your IFA, they are required to provide you with information about the products and services they provide and about the costs to the client. They will tell you the nature of the services they provide and the types of products they offer. They will tell you whether the products are sourced from the whole of the market or from a specified sector of the market. They will explain whether they offer advice and recommendation. They will tell you the details of ownership and regulation of the firm. They will tell you how to complain to the company and, how if not entirely happy, to the Financial Ombudsman Service. They will explain to you how to obtain compensation from the Financial Services Compensation Scheme. They will explain the different options that you have for meeting the cost of the advice and whether the firm charges fees, takes commission or offers a choice between the two and where a firm does take commission, they will tell you the amount of commission and how that compares with the market average for similar transactions. All this information will then be given to you or sent to you in the post in the form of an Initial Disclosure Document.
In order for your IFA to offer you advice they will need to fully ascertain your financial and personal circumstances relevant to the services which they are to provide. This is likely to be in the form of a confidential client questionnaire or fact find. They will need to know personal information such as, name, address, date of birth, marital or relationship status, number of dependents and state of health. They will need your employment details, occupation, employer, income and benefit details and any pension arrangements. They will need to know your assets and liabilities, for example any property owned, savings and investments or personal belongings along with any mortgages, loans or credit cards. They will also need to understand your household expenditure including loan repayments, household expenses, regular savings, holidays and luxuries. They also need to ascertain your attitudes to risk, your objectives and goals and your knowledge and experience of investment in the particular product in which you are interested. In the case of a pension plan, your adviser will also need full details of your pension and provider and your authority to approach them in order to obtain all the relevant information.
Once your pension provider has provided your full pension details to the adviser, they will then carry out a full and detailed review which covers your current provider’s product charges and the investment performance of your current fund options as well as the full range of fund options, flexibility of terms, financial strength of the provider, and any on going policy administration. The resultant report they provide to you will show you how well your pension is performing relative to other products in the market and the relative charges incurred and will also provide you with a projected benefit statement for your chosen retirement age. Having obtained all this information, your adviser will then be a position to recommend that you either stay with your existing provider, contract and choice of funds, stay with your existing provider changing contracts and or funds or move to a new provider, contract and fund options.
For any recommendation given by your adviser, you will be issued with a suitability report for the specific product chosen, explaining why the product recommended is suitable to you based on your particular personal and financial situation, your needs and priorities and your attitude to risk. The report will also identify any possible disadvantages to you and will be written in clear and concise English. Once you’ve received your report your adviser will call you to make sure that you fully understand it and to point out what the implications are of following or not following the advice. Don’t forget that you are under no obligation to follow any of the advice that has been offered.
Regular reviews and fund switches can lead to a greater performance and a reduced investment risk. Many IFAs will offer a regular pension review service with a fund management service at an annual charge of between 0.5% – 1.0% of fund value. These reviews will take place either once a year or for more aggressively managed pensions, every three months. By working in this way any remuneration received by the IFA is directly linked to your pension’s performance and your IFA will be actively working to increase your pension’s growth.